Questions & Answers

April 24th, 2009

Question

Is extraction levy (EL) an allowable deduction for corporate income tax?

Answer
Yes. Taxes based on cost or quantity are normally considered as an expense in the income tax law.


Question
Do you have a list of tax depreciation rates for different assets allowable for corporate income tax, specifically those assets used for oil and gas exploration and production?

Answer
No. Such a list is not available and there is no reference to the oil industry in the income tax law. But as a summary we can point out the following facts:

Assets like vessels, aircraft, plant, machinery and equipment, as referred to in article 33, item 1, in the income tax law no. 90/2003 (ITL), are depreciated according to the declining balance sheet method. The depreciation rate is optional between either:

- 10 and 20% Vessels and Aircraft
- 10 and 30% Long Lasting Machinery and Production Facilities
- 20 and 35% General Equipment
depending on how durable the assets are.

Depreciation of all other fixed assets including intangible assets are calculated on a straight line basis, see items 4 and 5 in article 33 in the ITL. See also closer details in article 37 showing the range of percentage as well as the nature of assets. However, in article 32 in the ITL, there are special provisions assuming that all cost recognized from a start of a project until any possible income or revenue will be earned from the relevant source, can be accounted for in a special way for tax purposes. This means that in stead of accumulating annual loss which can be carried forward for 10 years, such cost can be capitalized as an acquisition cost and deducted completely in one sum in the same year as the first income is earned or deducted with equal amounts over period of 5 years. This includes depreciation of fixed assets and interest expense as well during the period of acquisition.



Question
Please provide details of accelerated depreciation or uplifts for tax purposes.

Answer
No such accelerating depreciation or uplifts exist as the range of depreciation rates is optional. However, profit on sale of a fixed asset can be rolled over for two years and then settled for tax purposes by depreciating another fixed asset to offset that profit.


Question
Extraction Levy 10 million barrel exemption – please confirm the method of calculating extraction levy – for example if 25m barrels are produced, the first 10m are exempt (article 5 of Act no  170/2008 ), the levy rate is (25m-10m)/1m x 0.5 = 7.5% and this applies to 15m barrels?

Answer
The calculation of the 7.5% extraction levy is correct but the 7.5% levy applies to the 25 million barrels in line with Article 7(2). The exception of the 10 million barrels is included in the formula laid down in Article 7(1) of the Act.
The following table explains this. The table was included in the explanatory notes to the bill of law.

Barrels produced (millions) 20 40 50 60 80 100 125
Extraction levy rate 5% 15% 20% 25% 35% 45% 58%
Tax base in billions (price for one barrel ISK 10.000) 200 400 500 600 800 1000 1250
Ectraction levy (billions ISK) 10 60 100 150 280 450 719



Question
Please confirm that the 10m barrel EL exemption is available to each license holder for example if there is a consortium of two companies for one license each would be entitled to the 10m barrel exemption (article 5).

Answer
There can only be one taxable person for each license. Therefore only one company is entitled to the 10m barrel exemption each year.


Question
Please confirm that EL can never apply to more than 50m barrels (article 9).

Answer
No. There is no limit to the extraction levy rate or the amount of processed quantity it is applied on. Article 9 does not make a reference to 50 million barrels. However Article 14(2) makes reference to a maximum of 50m barrels, refers to the fact that the EL method shall be used to calculate a preliminary payment of the hydrocarbon tax until final assessment is made. Then the preliminary payment will be deducted from the total assessment and the difference becomes payable to the state or refundable if negative.


Question
Please confirm that when more than 50m barrels are produced only hydrocarbon tax effectively applies and no EL (article 9).

Answer
As referred to in the previous question, the 50m barrels provision is only a method to calculate the preliminary payment of the hydrocarbon tax before the final assessment is made. It is a main role of the law that when the taxable profit amounts to 20% of the taxable operating income for a whole tax year the extraction levy is replaced by a special hydrocarbon tax c.f. Art. 9.


April 17th, 2009

Question
Is hydrocarbon tax an allowable deduction for corporate income tax?

Answer
No.


Question
Do you have an English version of the corporate income tax law?

Answer
No, the income tax law is currently only available in Icelandic.

 

March 20th, 2009

Question
Can you please describe the regime for Health, Safety, Security and Environment as well as the tax regime in Iceland?

Answer
We have the same fundamental legislation as any other European Economic Zone countries (i.e. EU plus EFTA) and adhere to the same EU directives. We do not have a separate Petroleum Safety Authority as e.g. in Norway. Petroleum exploration and production is subject to the same HSSE rules, the same activity permits and the same supervisory authorities as any other business in Iceland. The only exception is that out on the sea our the National Energy Authority handles the roles that are traditionally played by a community, e.g. construction permits for individual projects. The same goes for the tax regime, petroleum production is subject to the general rules, but in addition the Act No.170/2008  stipulates a special tax regime.


Question
How can we get access to the original processing of the joint Icelandic-Norwegian seismic surveys from 1985 and 1988 and how much do they cost?

Answer
The original processing of the 1985 and 1988 Icelandic-Norwegian data is available upon request (email: thorarinn.s.arnarson (at) os.is). There is an administrative fee for the delivery of the data (50 000 ISK, approx. US$ 345).


Question
Is there a special data room in Reykjavik to get acquaintance with the data that is available for the Dreki Area?

Answer
We do not operate a data room, as you can get the governmental data either free of charge or for a nominal administrative fee, and the proprietary data are handled by the companies directly. But we are open for arranging, with a short notice, a private meeting with you or your representatives for answering specific questions of interest.


Question
Article 10 of Act No. 13/2001 on prospecting, exploration and production states that will only be awarded to a company which 'will be founded in Iceland'. When does this company need to be established? And does establishing a branch in Iceland fulfill this requirement?

Answer
A presence in Iceland needs to be established 90 days following the award of licenses. This will be put in the Licence itself for confirmation.

An establishment of a branch would fulfill all requirements of the Icelandic state towards the Licensee. An Icelandic branch from a company registered in a member state of the European Economic Area, the EFTA countries or the Faroes Islands is valid as a Company from the meaning of the Act No. 13/2001, Article 10.


Question
Are there facilities in place in Iceland enabling any licensee to serve any exploration activities without any specific investments being made.

Anwer
Yes, for the exploration phase, the facilities are in place for enabling the Licensee to serve exploration activities.


March 13th, 2009

Question
In Article 8 a of Act No. 13/2001 on prospecting, exploration and production of hydrocarbon it is stated that the Minister of Industry, Energy and Tourism may decide upon participation by the Icelandic State in hydrocarbon production. What are the plans for state participation in the first licensing round?

Answer
The Icelandic State will not participate in hydrocarbon production in the first licensing round.


Question
According to the Agreement between Iceland and Norway of 22 October 1981, does Norway have a right to 25% paricipation in petroleum activites on the Icelandic Continental Shelf in the area between Iceland and Jan Mayen, or do they have a right to up to 25% participation?

Answer
According to the Agreed Minutes from 3 November 2008, Norway has a right to participate in up to 25% of the petroleum activities within the agreement area. Norwegian authorites shall notify the Icelandic authorities within 30 days of receipt of all information on the applications of its decision on whether to exercise its right of participation, and if so to what extent.


Question
We have questions related to taxes and/or environmental legislation. Who should we contact to get answer to our questions?

Anwer
Please send your questions to the National Energy Authority (email: thorarinn.s.arnarson (at) os.is). We will forward your questions to the appropriate contacts as needed.



February 27th, 2009

Question

At APPEX in London March 3rd-5th, will delegates from the National Energy Authority and the Ministry of Industry, Energy and Tourism be available for private meetings with companies?

Answer

Yes, please send a request for a meeting to thorarinn.s.arnarson (at) os.is.


Question

In the report "Oil Exploration in the Dreki area on the Jan Mayen Ridge" from 2007, which is available here on the web-site of the Ministry of Industry, Energy and Tourism, cost figures are given on page 26 for exploration, development and production based on several scenarios. Can we get basis and calculations for this cost estimation providing more details on the cost for rigs and drilling operations?

Answer

As quoted in the heading of Table 2.1. on page 26 of the Ministry of Industry Report, the cost/price figures are at 2005 levels and taken from the 2006 report of Sagex. This report is on the web here.
Please look for further details on the cost estimates in the Sagex report.


Question

From the 2007 report mentioned in the previous question, it is not clear if a reservoir study is done or not. If yes, pls. furnish the details.

Answer

As there has not yet been any drilling activity in the area, a reservoir study is not available. Estimates on probable reserves have to be done mainly on the basis of an evaluation of geophysical data (2D) and geological similarities with explored areas in W-Norway and E-Greenland. Government authorities have not made any such estimates yet.


Question

When will the report "Searching for natural oil seepage in the Dreki area using ENVISAT radar images" by Ingibjörg Jónsdóttir and Arni Freyr Valdimarsson, that was indroduced at the Iceland Exploration Conference in September 2008, be made publicly available?

Answer

It is now available online here.


February 6th, 2009


Question:
Was new information given out during the Presentation Meeting that was held at the National Energy on Thursday, February 5th, that is not accessible on the web-site for the Licensing Round?

Answer:
During the Presentation Meeting the information on the web-site for the Licensing Round was presented and the audience given a chance to ask questions. No new information was given at the meeting that is not already on the web-site; however, the company Spectrum had delegates at the meeting who introduced the reprocessing that they have done of the seismic data from the joint Icelandic-Norwegian surveys from 1985 and 1988. This greatly improves the datasets and the reprocessed version of the data is for sale by the company.

Question:
Several data layers are shown in the Icelandic Continental Shelf Portal  that relate to the Licensing Round, e.g. the blocks of the northern Dreki Area, the Jan Mayen Agreement Area, e.t.c. Is it possible to get shape-files of these layers?

Answer:
Most of the data layers in the Icelandic Continental Shelf Portal are based on public information and are available upon request (email: thorarinn.s.arnarson (at) os.is). In certain instances, the data layers are based on confidential information and shape-files based on such information cannot be released.

Question:
Results of GC-measurements of surface sediment samples from the 15th cruise of the Research Vessel Akademik Kurchatov in 1973, i.a. on the Jan Mayen Ridge, are shown in Chapter 10 of a report that was published in 1980. There are no locations given for where the samples were collected. Can you please let us know where we can access this report and give the coordinates for where the cores were collected?

Answer:
A copy of the report is available upon request to the library of the National Energy Authority (email: library (at) os.is ). A copy of the front page and the contents of the report can be found here. The locations of the surface cores that were analyzed by GC are:

Station Latitude (°N) Longitude (°W)
1357 69°54' 8°30'
1361 68°45' 12°14'
1368 68°33' 9°58'
1379 66°59' 9°43'
1380 66°31' 10°23'
1381 65°25' 10°40'
1383 63°36' 13°26'
1389 67°05' 9°47'
1390 67°02' 8°24'

 

January 30th, 2009

Question:

How can we access the multibeam bathymetric and/or bottom hardness data from the cruise of the Marine Research Institute of June 2008?

Answer:
The data is available from the Marine Research Institute upon request to the National Energy Authority (email: thorarinn.s.arnarson (at) os.is).